Reasons For Resignation of Auditor

The auditor shall specify the valid reason for resignation in the resignation letter of auditor. A company is required to appoint an auditor for the maintenance of its books of accounts and the preparation of the audit reports of the company. The reasons include the hiding of information having a material impact on the accounts of the company, the impact on the reputation of the auditor, the requirement of the code of ethics provided by ICAI, etc.

Resignation of Auditor Before Expiry of Term

The following are five instances where an auditor resigns from his position before the expiry of their term:

1. Hiding of Information on the Material Impact on the Accounts

The Companies Act, 2013 provides powers to the auditors for accessing the books of accounts of the company at any time. The resignation can take place when the inquired information or explanation from the officers of the company is not disclosed. Thus, an auditor may approve the financial statements without access to information that resulted in the disapproval of the same.

2. Reputation Impact

An Auditor firm’s reputation is very important in the market. If there is fraud committed by any of the parties then it can result in an issue for their clients in the market. Due to the high internet connectivity, the news spreads in the blink of an eye. Thus, firms may take the resignation of auditor procedure from such accused companies with an irreparable loss to their reputation due to their association.

3. Code of Ethics requirement by the Institute of Chartered Accountants of India (ICAI) The fundamental principles are given as:

• Self–Interest

When an auditor is concerned about losing a client or has developed a business relationship with them, then it can develop a self-interest threat for the auditor.

• Self-Review

When an auditor has been a director or officer of the client or in a position where he or she could have significant control over the subject. This will create a self-review; the auditor should avoid taking up these assignments or take a resignation of auditor in a private limited company.

• Advocacy

The auditor shall consider resigning from the auditing assignments as there is an intention of defending their client in litigation or disputes that leads to biased opinion.

• Familiarity

When a member of an audit firm is a relative of an officer or director of the company.

• Intimidation

When an auditor is threatened to resign from the company where the fees are reduced. This also leads to intimidation threats which are against the code of ethics and imply the resignation of the auditor from assignments.

4. Investigation by Regulatory Bodies

The Central government has made strict principles for the resignation of auditors in a listed company to enhance the level of transparency in the business. In the recent amendment, the Companies Act, 2013 has imposed a penalty for fraud or contravention.

5. Termination

The auditor does not resign at their own will in all cases. The company terminates the contract in case of violation of terms by the auditor.

Conclusion

At Online XBRL services, you can get updated services for resignation intimation-related formalities of an auditor. The Companies Act, 2013 states that an auditor shall file a statement of resignation within thirty days of resignation.